Australian property market (& Coronavirus)

The ABS recently released property price data for the December 2019 quarter. This is obviously before the Coronavirus (CV) and so may not fully reflect current dynamics.

However, it pointed to a continued recovery in property prices, so ending the deepest downturn in some time.

AusProp

What turned it around?

  • Two fresh interest rate cuts in 2019.
  • Fiscal help (Federal Government’s First Home Loan Deposit Scheme).

Amid the continued structural driver of strong population growth in land-constrained cities. I recall my late grandfather talking of a teacher friend of his who bought at 1 Toorak Avenue way back when (good luck doing that now).

By city, a pretty remarkable turnaround in year-to growth in Sydney and Melbourne in particular. Darwin – currently experiencing a contracting population and continued slump post the Ichthys LNG project – remains mired in pain. Elsewhere, momentum is becoming more positive.

pricebycity

Yet that’s before the CV situation. Yet, there’s good points and bad points for property prices from it.

Bad:

  • Unfortunately unemployment looks set to rise, meaning many will struggle to pay their mortgages. At an extreme, that could lead to forced selling/repossessions.
  • Wealth loss through equity markets (which have experienced a savage sell-off) could flow through into ability to buy real estate.
  • A loss of investor confidence (frayed nerves), leading to lower levels of animal spirits in the market.

The good:

  • The RBA has cut interest rates a further two times, to just 0.25%. The cost of money is very cheap, which makes servicing easier.
  • To the extent the CV affects supply chains and home builders, there could be a drop-off in building activity (new supply) while population growth remains robust. Even before CV, there were signs of a tightening demand/supply balance again. This will take some time to assess. For reference this how the building cycle has looked recently:

Building

Note: completions, commencements to Sep-19, approvals to Dec-19.

  • Flight to safety: to many who may have watched some of their shares dive by 40, 50, 60, 70% in a matter of weeks, good old bricks and mortar may be more attractive to investors.

How it plays out will be interesting. Personally I’m still positive on the property market (in the right markets and for the right types of stock).

Stay safe out there!

Australian property market (& Coronavirus)

Comparing the 2008-09 crash

Yep, the feeling is undeniable. Big downward moves, heightened volatility, it’s 2008 again right? I mean, surely we’re due for another big one.

It does feel like that, but not so fast. Let’s take a step back and look at the data.

2008 crash

The Dow Jones peaked at 14,165 points on the 9th October 2007.

Its eventual low would come almost 18 months later, 9th March 2009 (6,547 points) – a fall of around 54%. Ouch.

2008

That was a big one, and one many of us remember vividly. For myself, fledgling share portfolio was poleaxed, lost my casual university job in finance and (coincidentally?) a lady friend at the time took off shortly after.

Traumatic stuff.

And trauma isn’t forgotten. It’s maybe for that reason people are expecting another repeat in the current market mayhem.

But how similar is it?

Comparison

Looking at the price action, the answer is ‘not very’. 2008 saw a slow and gradual decline from the October 2007 peak before a deep capitulation from late 2008 to early 2009. Contrast 2020, where we have seen a violent ~30% sell-off in 20 trading days. Post the October 2007 peak we were 96.44 at t+20. Hardly comparable. It wasn’t until t+250 (October 2008) that we had fallen by the same 30% magnitude.

Does that mean we have nothing to worry about? No. But it does mean you shouldn’t be caught up fighting the last war, patiently wait to buy at -50% in the indices and make a killing.

Good luck with that.

 

Comparing the 2008-09 crash

2008 redux?

The Australian share market is sitting right on post-2008 financial crisis t/l support. Next few days will be interesting.

Is it the big one? 2008 was (obviously) serious – we haven’t seen any major/systemic corporate failures, or broader economic stress (excepting supply chain/cashflow issues) – at least yet. By that I mean a jump in unemployment or major hit to economic growth.

Unlike 2008, there has not been a significant prior tightening cycle either. It’s true there was a tightening cycle, but the Fed was much more gentle than 2004-06. To wit, 225 basis points of hiking versus 425 basis points.

There certainly is a fair degree of panic out there if supermarkets are any indication.
More broadly times like this remind of the need for prudent position sizing, diversification and some degree of caution.

Having invested through 2008-09 (and taken a proverbial bath), I took some lessons – primarily psychological, it’s tempting to panic and sell dips and buy rips on the way down (or lose your nerve completely).

Charts:

And more importantly, it’s only money – it comes and goes…
Cheers.
(Not financial advice).
2008 redux?